Cost Management (Management Essay Sample)

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This report mainly focuses on the ways of improving project cost management and its processes, including preparation, implementation, and evaluation, which relate to overall business decisions and performance. The report analyses different aspects of project cost management, such as planning, estimating, timing, and changing of quality standards, by using different resources available at a company which may have impacts on the whole project of the company. Current articles have been used as the secondary sources, as well as the basis for the study. The primary data was collected through interviewing six executive managers in person. The overall results of the interviews showed the importance of project cost management in organizations and the impacts it has on the various projects that the organizations have undertaken.

Planning, estimating and controlling are essential to a company’s projects, since it determines the success of projects. If projects are not well-planned, they are most definitely never going to succeed. These processes also help the company measure cost performance of the planned projects. A project has to be well-timed, and this timing can greatly affect the project’s cost and budget. If the timing that is set for the project is not adequate enough, it can lead to the overstretching of the budget and the project’s cost. It will also mean that the company has to employ more labor to be able to complete the project in a timely manner. Project cost management enables a manager to identify all the costs within the set project, as well as keep and control all other costs incurred during project implementation.

Thank you very much for allowing me the opportunity to participate in this worthwhile study. I would like to acknowledge my group members for their help and participation in this study. I am confident that this report will aid you in making important decisions regarding the employee training process at Name of University’s College of Business and Technology and also help students develop professional skills that will help them succeed in their future careers. I would be more than happy to further discuss the findings with you. Please contact me at medo@name.edu if you have any questions or concerns.

Executive Summary

Project cost management is very important for the success of any company, since a company usually has several projects managers have to plan for. They have to manage everything that incurs cost because otherwise the costs of the company will continue to rise. This places a big responsibility on the managers, for they have to be able to perform all their duties to the best of their abilities. The managers have to collect all cost-related data and then compare it with all the corresponding allowances to be able to take all the necessary actions that will bring desired results. Cost estimation of a company is done by project sponsors, project managers, contract personnel, and team members of the project.

In this study on project cost management, the data which will be obtained from respondents will give the researcher a very clear and detailed view, which is based on the responses of the respondents to the questions. This presents a very clear explanation as to why ordinary questionnaires would not be very suitable, because the study would focus on getting detailed answers from the respondents. In this case, the researcher can observe the respondents’ answers, including their choice of words, as they are answering the questions, which would not be possible if ordinary questionnaires were used. This is because the researcher can follow up all the unclear answers from the respondents by using additional questions to get all the details which are needed for the study.

The respondents are supposed to give their own opinions and the researcher should have faith in them, since they are believed to give their full opinion as regards the matters which will be presented in the interview. The method of collecting data from these semi-structured interviews is appropriate for the scope of the project because the data will be obtained straight from the respondents themselves, which means that there will be no third party which could provide erroneous data. This paper mainly focuses on the importance of project cost management of a company to its management. The data is then analyzed to measure cost effectiveness in the companies that are run by the executive managers.

Project Cost Management

Project cost management is vital to any business undertaking, as it provides adequate information during planning, which is necessary to estimate and control the overall costs required to complete the project. This tool is crucial for project managers, as it acts as a guideline for activities to be carried out, as well as the size of a budget that is to be affordable to the business enterprise. These details are essential, as they reduce chances of incurring risks, especially if the project is not adequately planed (Harold, 2003).

We care a lot about project cost management, because it plays a critical role in a success or failure of the project in question. Similarly, poor planning, estimation and control of costs may jeopardize the entire firm; hence caution should be exercised at the early stages of project management. Consequently, there is a need to undertake project cost management bearing in mind that most projects are often temporary. The other issue affecting projects is that most of them are faced with financial constraints and short lifespans. Therefore, there is no room for errors resulting from lack of project cost management (Essam, et. al, 2012).

The other reason why project cost management is essential to any business is that the outcome of the current project determines existence of subsequent projects in the future. These projects are paramount for establishing performance trends in a business enterprise, and their success is regarded highly in any setup. However, failure to undertake thorough research before embarking on project cost management may cost the firm huge losses, as money will be spent, but the end product may not be desirable (Essam, 2012).

There are a number of project cost management skills that are relevant in this area, such as planning and designing skills, organizational skills, as well as good interpersonal skills, as the individual concerned will have to work with other team players. These skills will enable the project cost manager to undertake the planning, estimating and cost control activities sufficiently.

Purpose of the Study

The purpose of the study was to examine ways of improving project cost management and its processes. The report will answer the following specific questions:

How are planning, estimating, and controlling essential to the company’s project’s success and measuring of cost performance?

How does timing affect the project’s cost and budget?

Will changing quality standards using various resources have a positive or negative impact on the project?

Methods and Procedures Used

The data for this report was collected by using primary data collection method, since the data was collected directly from the participant. Data will be collected by means of semi-structured questionnaire interviews (Appendix A), which will be composed of 5 questions. The semi-structured interview is considered to provide the best results in this case, since the questions are fixed and the respondent gets to answer the questions according to their own opinion and perception. The researcher can come up with other questions, in case there is a need to explain to the respondents unclear questions to be able to get all the details necessary for the study.

The method of collecting data from these semi-structured interviews is appropriate for the scope of the project because the data will be obtained straight from the respondents themselves, which means that there will be no third party who could lead to erroneous data. The data will be collected from executive managers, who will be selected randomly, irrespective of their sex. The semi-structured interview is designed to take approximately 10-15 minutes to be completed. All interviews were conducted with the interviewer asking the questions. The data in these semi-structured interviews is usually of very high quality, and the respondents are in most cases more likely to provide their own opinions and suggestions.

The participants of the survey were managers of successful companies in the United States of America, where the managers were randomly chosen. There were a total of 6 executive managers who participated in the study. We were 3 students who interviewed the 6 executive managers where each student was able to interview 2 executive managers. We also asked them the same questions which were in the semi-structured questionnaire. This showed a very high response. The high response, in addition to the information gained from the interview sample, gave the team confidence that the data and feedback contained in this report are both significant and highly representative.

All the executive managers who agreed to participate in the study were required to fill in a consent form (Appendix B) to admit that they accepted to participate in the survey by their own free will. This is to make sure that the respondents were not forced to take part in the interview, and that there was no third party which was involved in the decisions of the respondents. Also, this was done to make sure that the respondents were independent in their ideas and opinions, since they were supposed to give their own independent and unbiased opinions. This improves the accuracy of the data collected.

After the participants have filled in the consent form, the interview process begins with the respondents answering the questions, which are asked in the interview form and the answers are recorded. I will ensure that the participants’ privacy is fully protected by providing full identity protection to all the respondents.

Analysis of Determining Ways to Improve Project Cost Management

The analysis of project cost management has been grouped into the following three categories: (a) the different parts of the project and how they are essential to the company’s success (b) how timing and budgeting affect the project’s cost (c) the impact of changing quality standards through various resources.

Research Question A: Planning, Estimating, and Controlling Costs are Essential to the Company’s Success and Measure the Cost of Performance

The success of any company, which usually operates mainly for marketing and acquisition of high profits, is dependent on management and establishment of all the products and services that are being offered by the company. For a company to be able to compete and survive in the competitive market, it has to be very successful. The success of a company or organization can be defined by the constant innovation and development of the company’s product lines and the increasing clientele numbers. Planning, estimating, and controlling costs are some of the most essential components in the project management of a company, since they contribute to the success of the company and assist in the measuring of the cost performance of the company.

In project cost management, there has to be identification of stakeholders, since the stakeholders of a company are the most essential determinants of any project carried out by a company. The stakeholders of a company are the key parties that have influence over the company and its future endeavors. Some of the major key stakeholders of a company are employees, customers, government, investors, institutions, shareholders, and suppliers. In order for a project of a company to succeed, it has to come up with strategies which put the stakeholders of a company into consideration.

This calls for good leadership in a company, since it entails decisions from the leaders of the company where poor planning, estimation and cost control could lead to the failure of a company. Leaders are the ones who are responsible for all the decision-making processes in the company. Good leadership can lead to very good decisions, which will maximize the strengths of the company in achieving the company’s goals. They have to come up with the company’s internal analysis, which is made up of the strengths, weaknesses, opportunities, and threats of the company. They need to come up with good decisions on how they can increase the strengths of the company in terms of boosting profit margins for the success of the company’s projects.

Risk planning in any project is also very important. When a project manager is planning a project, he has to systematically identify all the risks associated with the project in question. They could be further grouped into two categories, such as the internal project risks and the external project risks. The internal risks are the type of risks that can be controlled by the project manager through careful planning. These can include situations when a management team member quits before the completion of the project or even when the whole project falls far behind schedule. The external risks are the type of risks which often emanate from outside the project. In the case of the external risks, the project manager has got no control over this type of risks. Example of such risks include bad weather, which could lead to the obstruction of a construction project, or a ferry or vehicle breakdown, which could cause delay in delivery of the project’s materials and lead to the project falling behind schedule. Effective planning, estimation and control of the project require the project manager to be able to understand all the risks of the project and its stakeholders.

Research Question B: Costs affected by timing and budget

As the project team conducts all the components of the project throughout the life cycle of the project, the team leader, who is also the manager, is to make sure that all the means and resources at his disposal are fully utilized for him to be able to keep track of all individual components. At this stage, he is to coordinate and help in keeping track of all of the project’s components. The project’s management team, especially the leader of the management team, is able to devise several individual schedules, each of them helping in maintaining specific components of the company’s projects on a more specified scale.

Time is considered to be the most essential resource in any project. This means that unless enough and adequate time is allocated to the project, it may end in failure, since it will not be accomplished on time and thus result in wasting the company’s resources. Cost, on the other hand, also plays a very important role in time management, since schedule over-runs are usually very expensive. Therefore, coming up with very good schedules is the only way of showing good time management in a project. In this case, management of all the activities, as well as time required for the completion of the activities, are properly estimated and determined based on all the resources available to the project management team for the implementation of the project.

If the budget is inadequate, the whole project will lack funds required to complete the project. This means that the whole project might take longer than it was originally planned, which means that the cost of the project will also increase proportionally to the increased time Labor will have to be kept at a very low level, which will increase the cost of successfully completing and implementing the whole project, thus resulting in falling behind schedule.

The quality standard of a project is an operational technique, which can help in maintaining the project’s quality for the purpose of successfully completing the project. This can be achieved by using resources which are at the disposal of a company. A company has a number of unique resources which can enable it to achieve a sustainable advantage in the competitive market. For it to attain its set objectives and goals, it has to be able to come up with good decisions on how to regulate various resources at its disposal to be able to come up with successful projects.

The company’s resources represent all the inputs which are directed towards the company’s production process. They are further divided into tangible resources, which include financial, physical and technological resources, and the intangible resources, which include human resources, as well as innovative and reputational resources. If the resources of a company are restricted, it will have a negative impact on the cost of the project, since more labor will be required to complete it. If the resources are not controlled either, they will be exploited and wasted.

Variables

Percentages*

Limitations of resources

Time

33.3

Raw Materials

16.6

Efficiency

16.6

Dollar Constraints

33.3

Costs

50

Availability

33.3

Conclusions

The below conclusions are based upon the analysis of project cost management.

1. Planning, estimation and controlling are essential to the success of a company’s projects.They ensure that the company is able to measure its cost performance through executive managers who are the company’s leaders. Leaders have to act as role models, since they are the major drivers of all projects due to being involved in the project planning process and making crucial decisions. They have to come up with estimates of all the resources which are required for the project, identify all the activities, which are to be involved in the project, and also come up with an estimate of the entire time and budget of the project for it to be a total success.

2. If inadequately planned or allocated, timing can affect the project’s cost and company’s budget It could show that the company has to incur additional costs, which could put additional strain on the budget, since the company would be forced to plan more costs in the form of labor to successfully complete the project within the stipulated time. Time management is a major key responsibility of a company’s project manager. Therefore, a project manager should possess a good sense of time management, which is very important in project cost management.

3. Changing of quality standards could have both positive and negative impacts on a project. This is because the resources which are available to a company give it an added advantage by cutting costs required to implement the project. This is because the company usually has a prolonged benefit, which makes the creation of projects much easier due to the readily available resources.

Recommendations

1. It is recommended that managers should adapt a leadership management strategy. Project managers are the leaders of the company, and having innovative leaders will be very good for the decision-making capacity of the company. Some executives are solely to be blamed for the failure of the companies they manage because they put the profit goal above the customer satisfaction goal. Customers play a very important role in the existence of the company, because no matter how good the company’s products are, it needs customers to purchase the products. This ensures that the future projects of the company are well-planned and estimated, and the costs are controlled in a professional manner.

2. Proper timing should be allocated to all future projects of a company, since it affects the cost and budget of a project. This requires project managers to have good decision-making capabilities to be able to come up with a good time plan for the project, which should be adequate enough for the completion of the project without posing any risks to it.

3. Executive managers should come up with performance management training strategies, such as employee training and selection, because the employee and managers expectations are considered to be crucial when making certain progress in performance management of any company. The main reason for such a recommendation is because performance management training can help the company improve the work of its employees who are usually involved in this whole performance management training process. The development of performance management in a company will, therefore, indicate that they carry out their duties at 100% company performance. Project cost management is a system which requires a lot of support from the leaders of the company and the human resources department. Unless it is managed properly, it can lead to a downfall of a company. Therefore, the project management team has to have a very clear understanding on all the available resources to be able to accurately manage them, as well as and the project’s time.